Brokerages see up to 45% upside in ZEEL post Q4 result; should you invest?

Shares of media major Zee Entertainment Ltd (ZEEL) inched 1% higher at Rs 193.65 apiece in Friday’s session after the company reported a net profit of Rs 275.80 crore in Q4 FY21 against a net loss of Rs 766.70 crore in Q4 FY20. Operating revenue grew 0.8% sequentially to Rs 1,965.8 crore in Q4 FY21. Advertising revenue grew 8.09% year-on-year (YoY) to Rs 1122.96 crore driven by the continued recovery in the macro advertising environment.

For the full year, net profit rose 51.96% to Rs 800.05 crore in the year ended March 2021 as against Rs 526.50 crore during the previous year ended March 2020. Sales declined 4.92% to Rs 7729.92 crore in the year ended March 2021 as against Rs 8129.86 crore during the previous year ended March 2020.

Here is what brokerages have to say about the company post-Q4FY21 numbers:

Prabhudas Lilladher | Target price: Rs 278 | Upside: 45%

Zee Entertainment faces near-term headwinds on margins given the ongoing investment drive especially in digital and movie production business we remain positive on the company given it ability to gain market share in languages like Bengali, Kannada and Telugu; scaling down of investments in Sugar Box (non-core investment fraught with evolution risk) and likely emergence of ZEE5 as a future growth engine in changing content consumption landscape.

The brokerage firm has reduced its target to Rs278 (earlier Rs 296) as it the target P/E multiple to 15x (earlier 16x) to account for increased volatility of movie production business.

ICICI Securities | Target price: Rs 254 | Upside: 32%

Zee Entertainment management has set an ambitious outlook on double-digit ad revenue growth in FY22 (over FY20). Retained free cash flow guidance at 50% of profit after tax, which is a positive surprise on the back of cutting investments in SugarBox. The company sees a challenge in producing 35- 40 movies in the current situation and expects next two years’ EBITDA margin at >25% and subsequent return to the previous run-rate of >30%.

ICICI Securities has cut EPS estimates by 9%/8% for FY22E/FY23E on higher programming costs, and target price to Rs 254 (from Rs278). Upgrade to BUY (from Add) on retained FCF guidance and accelerated investments in ZEE5, whose performance would be the key rerating catalyst.

Motilal Oswal | Target price: Rs 210 | Upside: 10%

Zee Entertainment trades at an attractive valuation of 12x/10x FY22E/FY23E. This is a far cry from its historic multiples of 25-30x. Any potential re-rating will be governed by steady earnings growth, coupled with a consistent and disciplined investment approach, and avoiding non-core investments.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing)